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The receiver for Paramount Equity Financial Corp., a mortgage investment company found to have defrauded investors, has escalated its legal battle with a Toronto real estate developer whose projects were allegedly central to the company’s collapse.

Grant Thornton Ltd., the receiver, is seeking a court order that $16.7-million in investor funds – which allegedly flowed from Paramount to real estate projects backed by developer Enzo Mizzi and then elsewhere – were fraudulently moved out of the reach of creditors.

The action is the latest step taken by the receiver in its efforts to recover the $78-million that was pumped into Paramount by about 500 retail investors, most of whom were based in Ontario. None of Grant Thornton’s allegations has been proven in court, and in other court filings Mr. Mizzi has denied that any Paramount funds were improperly diverted to him.

The outstanding loans to Mr. Mizzi’s development companies represent one of the final sources of recovery for Paramount investors, who have been on a harrowing ride since 2017, when an Ontario judge placed the company in receivership at the request of the province’s securities regulator.

Paramount, which marketed itself to investors as offering “predictable, steady returns” and as “high-returning annuity/GIC alternative,” was supposed to deploy funds into second mortgages, with a maximum loan-to-value ratio of 85 per cent, on residential homes. The company, which was founded by Marc Ruttenberg, shifted away from that core business, however, and funnelled nearly $50-million into higher-risk mortgages on land – sometimes undeveloped – slated for multiunit residential buildings. Nearly all of those higher-risk loans were to development companies allegedly controlled by Mr. Mizzi.

Earlier this year, a majority of Ontario Securities Commission (OSC) adjudicators found that Paramount, along with Mr. Ruttenberg and two other Paramount executives, Bradley Burdon and Matthew Laverty, had defrauded investors through these misrepresentations.

Separate from the OSC proceeding, Grant Thornton has been pursuing recovery from Mr. Mizzi, who was not accused of any wrongdoing by the OSC. The receiver already sued Mr. Mizzi in 2019 over the defaulted loans to the development projects, a lawsuit that is still unresolved, but in September it took a new legal tack. In its latest application, Grant Thornton asked the court for an order that $16.7-million in Paramount funds transferred out of Mr. Mizzi’s development companies were either “fraudulent conveyances” or “transfers at undervalue.” Those legal designations exist to ensure someone can’t simply dissipate or move funds in an effort to keep them from a creditor.

If granted, such a court order can be a powerful tool for recovering investor funds, legal experts say.

Alan Merskey, a partner at Cassels Brock & Blackwell LLP with expertise in insolvency and asset recovery, declined to comment on the specifics of this case because it is before the courts, but said there are a few features of such a claim that make them distinct. They can be brought “against any person who was a ‘party’ or ‘privy’ to the transfer” of funds, which can potentially place many people on the hook for paying them back, Mr. Merskey said.

In the case of Grant Thornton’s recent application, the receiver has alleged that Mr. Mizzi’s brother, Filippo Mizzi, was an officer and director of some of the companies that borrowed from Paramount, and their sister, Mary Campisi, had an active management role in those companies as well. Both siblings should be subject to the proposed order, the receiver has argued.

Michael Simaan, a lawyer for Enzo Mizzi, declined to comment on the application because he said the lawyers for Grant Thornton had yet to serve him or his client. The Globe obtained the application, which is dated Sept. 12, from the court.

Although Mr. Mizzi has yet to respond in court to the application, he has responded to Grant Thornton’s 2019 lawsuit, and denied owing any duties to Paramount. He also criticized the receiver for selling the proposed development sites, located in Ontario cities such as Cambridge and Sault Ste. Marie, before his companies could “finish their work” and obtain a potential higher price.

Since its court appointment in 2017, Grant Thornton has been able to recover nearly half of the assets of Paramount’s largest investment fund, the SilverFern fund, according to the receiver’s most recent report to court. Grant Thornton also launched claims against the principals of Paramount, but in 2019 both Mr. Burdon and Mr. Laverty sought bankruptcy protection.

As for Mr. Ruttenberg, the founder of Paramount, the OSC said it was unable to locate him when it started its enforcement proceeding, and that the most up-to-date address it has for him is a post-office box in a Toronto UPS store.

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